Outsourcing versus Insourcing

Outsourcing is a well-known concept today. It simply means to disperse job duties to outside, nonaffiliated companies on an as-needed basis or for a flat monthly fee. This practice has been accepted and implemented by many companies as a cost-saving tactic to off-load competencies to other low-cost countries. The outsourcing market has been expanding rapidly for two reasons: bigger domestic talent pools exist outside tier-one cities and the use of videoconferencing and web meetings makes it easy to communicate from any location.

Some, however, argue that outsourcing leads to the loss of jobs for local candidates, which, in turn, may affect the nation’s unemployment and economy. Therefore, insourcing would be the other option. This is defined as having one’s own employee handle those job duties daily, thus keeping it “in-house,” and not involving an outside vendor. Most who support this concept believe that it leads to better management control and job creation on the local market level. It can also be seen as a solution to the hidden costs of outsourcing.

Before deciding which option to choose, outsourcing or insourcing, consider the following factors:

1)Business Goals of Cost2)Control3)Quality4)Availability of Talent/Resource5)Location

1) Business Goals and Cost: Make sure to define the business goals you wish to achieve with this decision. The cost of insourcing is the cost of the employee’s salary and benefits per year. Insourcing is generally more costly because a company must take time to develop new work processes or start a new division within a company. Many smaller start-up companies chose to keep things in-house. However, as a company grows, it may wish to let go of managing non-core functions to save cost and to focus more closely on its essential mission. Then, outsourcing would be the answer.

2) Control: Once you create your business goals, you must decide who will be in control over which aspects of the job. This can be the downside of outsourcing. Companies that outsource a process or service have little or no managerial control over how the outsourced company operates. For example, if a company is known to provide exceptional technical support customer service, you may choose to outsource those phone calls to benefit from the outside company’s existing infrastructure and proven expertise. However, if this reputation proves to be undeserved, then, typically, you cannot manage the way the outside company handles your customers. You cannot enforce your company’s values. A company that insources its technical support customer service phone lines maintains complete control over its operations and employees.

3) Quality: Quality depends on personnel. If you are looking for a temporary solution, dealing with a short term project, or wish to make no immediate significant investment, then outsourcing may be your best option. In these cases, outsourcing can give you access to specialized skill sets like ERP projects, technical support helpdesk services, and network monitoring services. Insourcing allows you to build your own professional team of skilled people over a span of time. Thus, insourcing is usually chosen by those who wish to find these skill sets in the local employment market and secure these talents for and within their own department.

4) Availability of Talent/Resources: If you chose to insource, you must have resources and talent. Many companies chose to outsource to access a developed workflow and employees already familiar with a specialized process. Outsourcing seems to be more prevalent in the manufacturing and distribution industries that hire labor and/or services from an external organization in order to cut costs and decrease their tax burden.

5) Location: A company’s location will affect its choice of outsourcing or insourcing. Insourcing typically involves placing the new operation on site at the company or somewhere in the near vicinity. Outsourcing usually involves using an outside company that is not near the operations or corporate office. This does not necessarily imply outsourcing to an outside country, a practice referred to as “off-shoring.”

Today, you may choose from many outsourcing vendors or a pool of potential employees, so do your homework before selecting an outsourcing partner or hiring an employee to be in-house. Both insourcing and outsourcing are valuable in different ways, so it is important that you consider the above five factors. Often, a thoughtful and cost-effective decision can lead to competitive advantage and long-term gain.

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